August 24, 2012
Wool prices have fallen in recent months as weak demand conditions weighed down the market in spite of low supply. The start to the new 2012/2013 season in Australia and New Zealand has been disappointing with a 2-percent decline in the Australian Eastern Market Indicator in the first week of sales (although it was a 5-percent drop in Australian-dollar terms). Compared with a year earlier, wool prices are between 17-percent and 25-percent lower, although prices in July 2011 were at or near record highs.
In spite of the recent pull-back in prices, current wool price levels are also well above the average prices seen in the past 20 years. Wool has outperformed competing fibers. Cotton, polyester and acrylic prices are currently around 30-percent higher than levels seen in January 2006. In contrast, wool prices are between 80-percent and 120-percent better than in January 2006.
Despite the improved tone of trading this week, the steadier price trend has yet to be confirmed and the performance of the market at the next auction will be crucial. A sustained return to the market by buyers may still be a remote prospect, in light of pessimistic economic forecasts in China, evidence of a slowdown in that country's textiles and clothing exports, and the still uncompetitive appearance of wool prices relative to those for other fibers.
With demand conditions in the wool textile industry expected to be weak over the next few months, wool prices could soften a little more in coming months. The added volumes from the Southern Hemisphere producing countries during the Southern Hemisphere spring (September-November) could put some seasonal pressure on prices.
In spite of this subdued outlook in the short-term, the leading indicators of economic conditions from the Organization of Economic Development and Cooperation point to a turning-point in the downward trend in wool prices seen over the past nine months. Critical to the outlook will be developments in retail sales in the United States, Europe and Japan in the Northern Hemisphere fall/winter.
Reprinted in part from Wool Market Report